Surcharge on Income Tax : Rules and Calculation?

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Hiral Vakil

Income Tax
Surcharge

What is Surcharge on Income Tax?

A surcharge is an additional charge on Income Tax. It was introduced with a principal that the rich should contribute more by way of tax, as compared to the poor.

Earlier the surcharge was applicable only on corporate assessments. In Budget 2013, a 10% surcharge was introduced on rich individuals having income greater than Rs. 1 crore. This rate was subsequently increased to 12% in budget 2015 and further to 15% in budget 2016.

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Rate of Surcharge on Income Tax for AY 2017-18

Type of TaxpayerApplicable if incomeRate of surcharge
Individual / HUFExceeds Rs. 1 crore15%
Partnership Firm / LLPExceeds Rs. 1 crore12%
Domestic CompanyIs more than Rs. 1 crore but less than Rs. 10 crore7%
Domestic CompanyIs more than Rs. 10 crore12%
Foreign CompanyIs more than Rs. 1 crore but less than Rs. 10 crore2%
Foreign CompanyIs more than Rs. 10 crore5%

How to calculate Surcharge?

A Surcharge is calculated on total income tax and not on total income. Criteria for income above Rs. 1 crore is only to check the applicability of Surcharge. Also, note that if a surcharge is applicable then education cess will be calculated on the total amount of income tax plus a surcharge. Let’s look at a scenario to understand.

ParticularsTaxpayer ATaxpayer B
Total taxable incomeRs. 97,00,000Rs. 1,01,00,000
Total tax payable as per Income Tax Slab RateRs. 27,35,000Rs. 37,25,000
Applicability of SurchargeNoYes
Surcharge @ 15%NARs. 5,58,750
Total tax plus SurchargeRs. 27,35,000Rs. 42,83,750
Education Cess @ 2% and higher education cess @ 1%Rs. 82,050Rs. 1,28,510
Total tax payableRs. 28,17,050Rs. 44,12,260
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What is marginal relief on surcharge?

The concept of marginal relief is designed to make sure that the increase in income tax due to surcharge is not higher than the actual increase in income. Let’s look at a scenario to understand:

ParticularsTaxpayer B
Total taxable incomeRs. 1,01,00,000
Total tax payable as per Income Tax Slab RateRs. 28,55,000
Applicability of SurchargeYes
Surcharge @ 15%Rs. 4,28,250
Total tax plus SurchargeRs. 32,83,250

As you can see that the surcharge of Rs. 4,28,250 is greater than extra income earned above Rs. 1,00,00,000 i.e Rs, 1,00,000. So marginal relief will be calculated as:

how to calculate surcharge/ Surcharge formula


ParticularsTaxpayer B
Total taxable incomeRs. 1,01,00,000
Total tax payable as per Income Tax Slab RateRs. 28,55,000
Surcharge @ 15%Rs. 4,28,250
Education Cess @ 2% and higher education cess @ 1%Rs. 87,750
Total tax liability including surcharge and cessRs. 30,12,750

FAQs

What is a surcharge in Income Tax?

A surcharge is an extra fee, charge, or tax that is added on to the cost of a good or service, beyond the initially quoted price. Often, a surcharge is added to an existing tax and is not included in the stated price of the good or service

How are surcharges calculated?

A Surcharge is calculated on total income tax and not on total income. Criteria for income above INR 1 crore is only to check the applicability of Surcharge. Also, note that if a surcharge is applicable then education cess will be calculated on the total amount of income tax plus a surcharge.

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